Day trading stocks is one of the most difficult ways to make money in the stock market. There’s a long list of reasons why long-term investing is the safer and easier way to go.
Day traders rack up massive amounts of commission fees. Day-trading gains are taxed at a higher rate than long-term gains. Day traders are competing against high-frequency trading algorithms that can enter and exit positions in milliseconds.
Practically speaking, simply guessing which direction a stock is going to go isn’t a viable investing strategy. And if all these reasons aren’t discouraging enough, studies have found that more than 90% of day traders lose money.
However, much like the Powerball lottery, when big money is on the line, people don’t care about the odds. If you are determined to become rich day trading stocks, you must first select the right stocks to trade.
Here are three stocks that aren’t great long-term investments but make solid day trading stocks.
Stocks Only Fit For Day Trading: Ocean Power Technologies (OPTT)
As a long-term investment, Ocean Power Technologies Inc (NASDAQ:OPTT) is going nowhere fast.
OPTT is working on developing technology to harness the power of ocean waves. Wave power is an exciting idea in principle. Unfortunately, wave power technology may still be decades away from large-scale economic viability.
While OPTT has been working out the kinks in its PowerBuoy, its stock has plummeted 93% in the past five years.
However, day traders don’t care at all about long-term performance. Instead, they care about liquidity and volatility. Ocean Power has plenty of both. The stock has 5.53 million shares outstanding and an average daily volume of around 1.5 million. That type of liquidity is good news for day traders looking to get in and out of positions quickly and easily.
When it comes to volatility, OPTT stock has an incredibly high beta of 4.2. That beta means that the stock is 4.2 times as volatile as the S&P 500 as a whole.
This combination of liquidity and volatility makes OPTT stock a perfect day-trading candidate.
Stocks Only Fit For Day Trading: Sears (SHLD)
It seems that no matter what Sears Holding Corp (NASDAQ:SHLD) management tries, the company is on a slow march toward bankruptcy. SHLD stock is down 84% in the past five years and 40% year-to-date. In that same five-year period, revenue is down 42%.
The company hasn’t turned a profit in years. Amazon.com, Inc. (NASDAQ:AMZN) and other e-commerce competitors seem to have SHLD stock down for the count.
The good news is that Sears makes a perfect day-trading candidate. The popular stock always has plenty of liquidity, averaging nearly 800,000 in daily volume. In addition, its beta of 2.3 suggests plenty of volatility. However, SHLD stock also has another secret weapon that makes it a perfect day trading stock: huge short interest.
GuruFocus reports that SHLD stock’s recent short percent of float came in at an incredibly high 68.5%. All those short sellers help to compound any move SHLD stock makes in either direction, adding to its day-trading appeal.
Stocks Only Fit For Day Trading: Lending Club (LC)
From a long-term investing standpoint, LendingClub Corp (NYSE:LC) is far from a safe bet. The stock jumped 15.2% in one day following a Q3 earnings beat. Unfortunately, expectations were extremely low.
After six consecutive quarters of revenue growth above 85%, Lending Club’s last two quarters have come in at 7% and -2%. Net income has dipped into negative territory as well. LC stock is down 72% since the beginning of 2015, the CEO jumped ship earlier this year and the company was subpoenaed by the Department of Justice regarding falsified documents.
However, the stock has all the hallmarks of a great day trading option. LC stock has a beta of around 2.1 and plenty of liquidity. The stock’s daily trading volume is 8.1 million. Finally, LC stock has an elevated short percent of float of 22%, the cherry on top of the day-trading sundae.
As of this writing, Wayne Duggan did not hold a position in any of the aforementioned securities.
